How to prevent a financial doomsday

As a junior senator in 2006, President Obama understood this. Explaining his vote against raising the debt limit, then-Senator Obama stated the increase was ” a sign that the U.S. government can’t pay its own bills” and “a sign that we now depend on ongoing financial assistance from foreign countries to finance our government’s reckless fiscal policies.” He complained that “increasing America’s debt weakens us domestically and internationally” and that “Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren.”
 
Precisely.
 
While White House officials and Democrats on the Hill try their best to convince the American people that a failure to raise the debt ceiling would spell disaster, the real danger lies in allowing our massive debt to continue to grow unchecked.
 
Just this week, International Monetary Fund (IMF) officials stressed that “it is important the United States undertakes fiscal adjustment sooner rather than later.” In their Fiscal Monitor Report, the IMF warned of the consequences if the bond market loses confidence in our ability to rein in the deficit. Although “market concerns about sustainability remain subdued in the United States,” the IMF said, markets tend to react “late and abruptly to deteriorating fiscal conditions.”
 
As long as our debt burden continues to grow, higher interest rates remain a constant threat and “further delay in action could be fiscally costly.”  The IMF report warns that deficit reduction is “particularly urgent in the United States to stem the risk of globally destabilizing changes in bond markets.”
 
Even with historically low interest rates, the interest payments alone on our debt already consume around 10 cents of every tax dollar and are projected to consume over 20 percent of all tax revenue by 2020 — that’s one out of every five tax dollars. And that’s if we’re lucky. If our foreign investors — who own roughly half of all publicly held U.S. debt — begin to doubt our will to balance our budget, interest rates could rise sharply.
 
In short, all of the grim consequences Democrats are warning about are just as strongly linked to failure to limit the debt as they are to failure to raise the debt limit.
 
The White House dismissed the necessity of tying a debt ceiling vote to budget reforms by assuring us that President Obama’s new and improved deficit reduction plan would save the day. However, instead of substantive proposals to reduce the debt burden, the president delivered his most partisan and least presidential speech yet.

Distorting and demonizing Chairman Paul Ryan’s thoughtful and detailed plan, the president offered nothing but tax hikes, study commissions, and amorphous goals to “eliminate waste” and “find additional savings.” After similarly hollow rhetoric in the State of the Union and his 2012 budget proposal, this week’s speech should put to rest once and for all any expectation that we should expect leadership — or even cooperation — from the Executive Branch.
 
This is all the more disappointing in light of the reality that the president’s advisers are actually right. We are headed for fiscal catastrophe. Blindly raising the debt ceiling may postpone it, but it will not avert it. The only way to prevent a financial doomsday is to enact significant and lasting spending reforms.   
 
Rep. Tom Cole (R-Okla.) is a member of the House Budget and Appropriations committees.